January 2012        

EU bigwigs hope to have a fiscal union in place by March

A third draft of the “Treaty on Stability, Coordination and Governance in the Economic and Monetary Union” is now doing the rounds. Common to all drafts is a restriction on the ability of signed-up countries to run a public deficit, excluding interest payments, of more than 0.5 per cent of GNP.
      This means the euro-zone states concerned giving up all or most of their control over their annual budgets, which is the main area where they still retain significant sovereignty.
     It does not differentiate between a deficit that has been run up through excessive consumption from a deficit caused by spending on sensible infrastructure investments, green projects of various kinds, research activities, or education. Such investment would make us all richer and would provide employment, whereas cutting back on production and sacking people makes us poorer, even if the budget balance is improved and the euro zone becomes stabilised.
     Even the Fianna Fáil leader, Mícheál Martin, has described what is proposed as a “bogus fiscal union.”
     Sovereignty classically means that a country decides all its own laws. In the EU it is Brussels that decides most laws. Signing up to the treaty would result in a qualitative change in the nature of the outside interference with the budget, taxation and public-spending capacity of the Irish state.
     Michael Noonan deliberately confused this point when he told a meeting in London that “there is external consultation already on the types of budgets that we put in place. For example, we have to reach agreement with the European authorities and the IMF—and have done so—on the level of deficit that we run in all budgets up to 2015.”
     He also boasted that he has “a fiscal control bill drafted already, which in certain respects goes further than is required.”
     His audience of City of London financiers and bankers might have missed the travesty of the principles of sovereignty, democracy and independence that he was espousing, but European democratic opinion, and in particular its Irish section, cannot be equally blind.
     Today, his fiscal control bill can still be defeated or repealed in a parliament that is answerable to the Irish people, and even the IMF-ECB-EU “troika” will ultimately have to leave these shores.
     The effect of the fiscal compact treaty would be to turn the state in effect into a permanent province of a Franco-German-dominated euro zone. The Treaty of Lisbon, which came into force in 2009, provides that from 2014 onwards law-making in the EU will be put on a straight population basis, just as in any state. From 2014 EU laws will be passed if there is a majority of 15 member-states (out of 27) in favour, as long as the 15 comprise 65 per cent of the EU’s total population of some 500 million people.
     Germany and France between them have one-third of the EU’s population. This change will effectually double Germany’s voting weight in making EU laws, from its present 8 per cent to 16 per cent. It will increase France’s, Britain’s and Italy’s voting weight from their present 8 per cent each to 12 per cent each.
     The Irish state, with its 4½ million people, would have less than 1 per cent voting weight in making EU laws.
     The EU has been correctly described as a “bankocracy.” Between 2008 and July 2010 the European Commission approved national state guarantees for European banks to the tune of €4.589 trillion.
     Remember that it was Jean-Claude Trichet and the European Central Bank that insisted to Brian Cowen and Brian Lenihan that the insolvent Anglo-Irish Bank must not be allowed to go bust, in line with the ECB policy of preserving all the euro zone’s banks for fear of “contagion” spreading to banks in other euro-zone countries.
     This led to more than €60 billion of private Irish bank debts to foreign banks being imposed on Irish people who were in no way responsible for them. The resulting ballooning public-sector deficit led to the EU-ECB-IMF stitch-up, with this “troika” taking over direct supervision of the state’s finances.
     Or to take another example. The Government will redeem at par an Irish Bank Resolution Corporation €1¼ billion bond on 25 January. This unsecured, unguaranteed bond traded at less than 60 per cent of par within the past year, and it is more than reasonable to ask why the Government is redeeming this bond at par, notwithstanding that the issuing bank is insolvent and is being liquidated.
     The proposed payment is equivalent to the salaries of five thousand extra nurses for five years; or one-third of the cuts and tax increases in the 2012 budget; or the full cost of two new national children’s hospitals.
     Instead the money will be used to reimburse anonymous bond-holders who provided funds at the peak of the boom to a bank that operated as a virtual casino.
     While the Government has not revealed any particular worries about the specifics of the draft treaty, it has moments of panic about whether it will have to concede a referendum on it.
     Could Ireland be thrown out of the euro zone if it rejects the fiscal compact treaty? Already this line of argument has raised its head in direct proportion to the level of referendum-phobia besetting the Government. The answer is clearly No, as there is no treaty provision for a member-state being expelled from the EU or EMU.
     “Beggar thyself and thy neighbour” is a mantra for the fiscal compact treaty. It offers us no future. Kenny bangs on about the loss of our “economic sovereignty,” but all he wants is to have the euro debt federalised so that he and Noonan can claim a reduction in interest rates to be a supreme political achievement as Berlin takes over permanently our detailed budget decision-making under the fiscal compact treaty.
     It might achieve a stabilisation of the euro-zone crisis but only at the cost of recession and the imposition of huge burdens on people.
     It is a step too far.

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